ITO, WARD - 27(2), HALDIA, HALDIA vs. SRI SABYASACHI PRADHAN, PURBA MEDINIPUR

The facts of the case are at page-2 of the ld. CIT(A) which is extracted for ready reference :- The assessee formed a partnership Firm along with two other persons - Sri Sabyasachi Pradhan and Sri Girish Chandra Rout under the trade name M/s. Hotel Sea Weed' having its PAN: AADFH9221R (i.e., the Seller Firm). They had their own landed properties adjacent to each other which were given to the common asset basket of the Firm. The said Firm thereafter took loans from M/s. Balageria Central Co-Operative Bank Limited (i.e., the Lending Bank) and constructed a hotel building on the aforesaid plots of lands. On being unable to run the hotel business profitably, the loan dues to the lending bank become bad and the lending bank under the direction of the Competent Authority being Assistant Registrar of Co-operative Societies, auctioned the Hotel Building property and the partners of the Seller Firm transferred the said property to another partnership firm bearing the same name - M/s. Hotel Sea Weed but different PAN: AAFFH2335G and different partners - Sri Ashok Sinha and Smt.. Mahua Sinha (i.e. the purchaser firm). The property was sold to the purchaser firm for Rs. 1,35,00,000/- on 04.08.2008, the value of which was ascertained at Rs. 1,60,17,282/- by the Registration Authorities for levy of Stamp Duty. The Seller firm did not file its return of income for the impugned assessment year 2009 - 2010 as its business remained discontinued. The Seller Firm was still not dissolved by executing any Indenture though its business is discontinued. The AO had in his possession the AIR information from ADSR - Ramnagar regarding property transaction for sale of property with the said Registration value of Rs. 1,60,17,282/-. The AO had issued notice u/s. 148 to M/s. Hotel Sea Weed, the purchaser firm (PAN: AAFFH2335G) to re-open the assessment proceedings for charging Capital Gains tax and not to the Seller Firm, M/s. Hotel Sea Weed (PAN: AADFH9221R). The said assessment u/s.147 was made on 31.03.2014 on Nil income. The assessment proceedings of the appellant, Sri Partha Sarathi Das, for the assessment year 2009-2010 was pending before AO. During such assessment proceedings, the appellant was asked to clarify the chargeability of capital gains for sale of the impugned immovable property as per the AIR information and the appellant clarified that he had not sold the property rather the seller firm of which he is a partner had sold such properties. Such assessment u/s. 143(3) was completed on 29.11.2011. Having received such information during Shri Sabyasachi Pradhas 2335/K/2017 Shri Girish Chandra Raut and 2336/Kol/2017 Shr Partha Sarathi Das & CONo.24/Kol/2018 3

He held that each assessee shall be assessed only in respect of this income and that a partnership firm is clearly a separate and distinct assessable entity, different from its individual partners and that income of the partnership firm has to be assessed in its hands only. He referred to section 189 of the Act and held, that even if the business of the firm is discontinued, the AO shall have to make the assessment on the firm, as if no discontinuance has taken place. He held that notice issued u/s 148 of the Act to the partners of the firm is non-est and hence he quashed the same as ab-initio void.

Assessments framed for all the three partners, who are appellants before him in their individual capacity was quashed. Aggrieved the revenue is in appeal before me on the following grounds :-

The ld. Departmental Representative submitted that, on examination of sale deed executed by the assessee it is proved that the sale had taken place in their individual capacity and it was not a case of sale of the firm’s asset. He relied on the documents and submitted that nowhere was it mentioned in the registered documents that these individuals were selling the property in question on behalf of the firm. He pointed out that the seller partnership firm bearing PAN AADFH 9221R has not filed its return of income nor paid tax on the same. Alternatively he submitted that the tribunal should direct the department to assess the seller firm .

The ld. Counsel for the assessee, on the other hand, filed a paper book and pointed out that the AO was very much aware that the asset in question belong to the partnership firm. He filed copies of the reasons recorded for issuing of notice, u/s 148 of the Act to the seller firm M/s. M/s. Hotel Sea Weed and submitted that, it was only during the course of scrutiny proceedings u/s 143(3) of the Act in the case of Shri Partha Sarathi Das for A.Y.2009-10, this information came to light. He also pointed out that the written down value (WDV) of the asset in the books of account of the Shri Sabyasachi Pradhas 2335/K/2017 Shri Girish Chandra Raut and 2336/Kol/2017 Shr Partha Sarathi Das & CONo.24/Kol/2018 6 assessee firm was taken into consideration while computing capital gains on sale of the asset. He relied on the order of the ld. CIT(A) and supported the same.

Heard rival contentions. On a careful consideration of the submissions, papers on record and case law cited, I hold as follows.:-

The AO has recorded the following reasons while reopening the assessment of the ”purchaser firm” M/s. Hotel Sea Weed with PAN AAFFH 2335 G with address at Hotel Sea Weed, Paschim Sadadharpur, Old Disha, Purba Medinipur, West Bengal- 721428.

Notice u/s 148 of the Act was issued to the purchaser firm M/s. Hotel Sea Weed on 31.07.2012 . Notice was also issued on 31.07.2012u/s 148 of the Act to Shri Girish Chandra Rout, who is the respondent before me and a partner of the seller firm The AO had taken the cost of the asset as the WDV in the books of the seller partnership firm. Thus it is clear that the AO, prior to framing assessments on the purchaser firm and prior to framing assessments on the individual assessees, who are Shri Sabyasachi Pradhas 2335/K/2017 Shri Girish Chandra Raut and 2336/Kol/2017 Shr Partha Sarathi Das & CONo.24/Kol/2018 7 respondents in these appeals was fully aware that the asset in question belong to the seller partnership firm and not the individual assessees. It was the WDV of the asset in the Balance Sheet of the Seller Firm that the AO has taken for the purpose of computation of Capital Gains. Thus the argument of the ld. DR that the AO was misled as to whether the asset belonged to the firm or the individual in view of the recitals in the sale deed is devoid of merit. The notices u/s 148 of the Act were wrongly given as the reasons recorded were against the fact that, the asset belong to the firm which were in the knowledge of the A.O.

In the circumstances, I find no infirmity in the order of the First Appellate Authority wherein he held that u/s 189 of the Act, the assessments have to be made on the firm only, even if the business of the firm is discontinued. He rightly held that the capital gain in question could be brought to tax u/s 189 of the Act only in the hands of the seller firm with PAN AADFH 9221R. In view of the above discussion we uphold the order of the First Appellate Authority and dismiss all the three appeals of the revenue.

The sole cross objection filed is in support of the order of the First Appellate Authority. It was also submitted that the notice u/s 148 of the Act issued on all these three assessees were not served on them. I would not go into these matters, as it would be an academic exercise in view of my decision above.

In the result the cross objection is dismissed.,

In the result the appeals of the revenue and the cross objection of the assessee are dismissed.